Global Economics

Euro Skeptics in Slovakia

Leaders of the Eastern European nation may embrace the currency, but elderly pensioners are wary of the change

Emil Pis, a 75-year-old pensioner in the central Slovakian village of Kanianka, finds himself relatively well off compared to some of his peers.

Pis' income is nearly one-third higher than the average monthly pension of 8,885 crowns, or €275, a sum that is still small in a country that has moved from one of the most economically dour in the region just a few years ago to what the Economist Intelligence Unit has called a "shining star."

But Pis believes his relative fortune may come to an end if Slovakia abandons its currency, the crown, and joins the European Monetary Union next year. At the current exchange rate, his pension of 11,920 crowns will equal about €370—what he calls the "new money."

"You mean those €300 I'll be getting a month? What will I do with three pieces of hundred-euro banknotes?" says Pis, a retired miner who also gets a disability benefit because of an injury suffered on the job.

Across Slovakia, the chance to become only the second of the EU countries in Eastern and Central Europe to join the euro zone is being met with a combination of pride that the poorer half of the old Czechoslovakia has matured, and trepidation that the currency shift will be accompanied by higher prices.

Slovakia's finance minister and head of the national bank have told the European Commission that the country's target to adopt the euro is 1 January 2009. If all goes as planned, by July all prices in Slovakia will be listed in both currencies to ease the transition, and the country will inaugurate the new year with new coins and banknotes. "This duality will be in effect even all throughout 2009 when the euro will have already been introduced," explained Ivan Sramko, head of the National Bank of Slovakia.

Still, the change is far from certain. Slovakia must pass important tests and its timing may be bad. In order to join the currency union countries must meet rigid financial criteria—including limits on public debt and inflation. But consumer prices have been rising in Slovakia and across the European Union, driven by higher fuel and food prices, and unemployment remains stubbornly high—11 percent in 2007, compared to the EU average of 7 percent. Even some of the much richer original euro members are struggling to meet inflation and debt targets.

Nations that adopt the currency also effectively cede control over monetary policy to the Frankfurt-based European Central Bank, which means they give up the power to spur growth during downturns, for example by slashing interest rates, or to control inflation by raising them.

A decision on whether Slovakia is fit to join the currency union will be made by the European Commission and ECB in May. So far among the Central and Eastern European states, only Slovenia has met the criteria and switched to the euro in 2007.

The government and National Bank of Slovakia have spent years trying to get the economy fit, putting spending on a diet, overhauling the tax system and earning praise from the World Bank for being "one of the fastest reformers in the world." The International Monetary Fund estimates that the country's economy will grow at 6.6 percent this year compared to less than 2 percent for the euro area as a whole.

THREE CROWNS AND THE EURO

But for the more than 800,000 people over 60 in the country, adjusting to a new currency (the euro would be their fourth currency in 20 years) might not be easy. And some analysts say the information campaigns launched by the government to introduce Slovaks to the euro aren't enough.

"The current generations of pensioners suffer from a relatively recent social transition," said Olga Gyarfasova, a senior research fellow at the Institute for Public Affairs in Bratislava, referring to the period since the 1989 revolution. "They suffer from the discontinuity that hit them at an age when they simply couldn't fully adjust to the switch, with changes coming throughout the society. The greatest advantage for younger generations is that they become rooted naturally."

Gyarfasova said a change in currency will affect all groups with limited earning potential, including minorities and the elderly, who make up the largest such interest group. "And I do have the feeling that there is a lack of communication toward individual social groups," she said.

Business people and the younger, better informed and mobile generations are more enthusiastic about the prospects of joining the euro zone. A September 2007 Eurobarometer poll showed that 51 percent of Slovaks surveyed said adoption of the euro would have positive consequences for the country, while 29 percent said it would have negative effects. The same survey found that 55 percent of people would be happy to replace the crown with euro bank notes.

But the poll also exposed a gender and generational gulf. Those respondents who least understood the currency transition and were most wary of cashing in their old money for the euro were women and the elderly.

"The hunger is still not adequately satisfied," Gyarfasova said of the lack of understanding of the euro among some groups in Slovakia. "Moreover, it keeps on growing as we're approaching the date set for the introduction of the euro. That's creating an atmosphere of uncertainty and suspense."

To address concerns among older citizens, the Slovak Pensioners Union (JDS), together with the Consumer Institute have launched a "Seniors and the Euro" campaign. Their campaign has little in common with the massive information project launched by the Finance Ministry and National Bank. The government has set aside 180 million crowns (€5.6 million) to educate the public about the euro.

JDS organizes seminars and lectures and provides materials from the National Bank to help educate its members about the euro, said the union's leader, Kamil Vajnorsky. The main medium used for feeding seniors information is the pensioners' union magazine Treti vek (The Third Age).

Activities held to date have shown that seniors who participated responded well, Vajnorsky said. "The participants have been provided relatively comprehensive and qualified information on the euro. Any questions and intricacies were explained to wipe away any confusion. It's a social group with life experience, so they have no problem in grasping it."

Vajnorsky disagrees that the elderly are more vulnerable than other generations or social groups. "Essentially, seniors, just like any other social group, are not threatened by anything serious when it comes to adopting the euro. We can't speak of a 'threat' here. It's only some negative side effects of some phenomena that might possibly occur. But taken together with all the other positive things, these don't have the upper hand."

Vajnorsky believes that conversion from crowns—now valued at 32 to the euro—to the European currency will not itself affect the living standard of pensioners. "In the worst-case scenario, it could stagnate for a certain, short period," he said.

A CURRENCY WITH CACHET

Euro notes and coins began circulating in 2002. The currency's value has been soaring against the U.S. dollar and in recent weeks has gained on the British pound. America's credit crisis and demand for the euro as a reserve currency among central banks have contributed to its rising value, prompting fears of lower demand for European exports, and corresponding job losses, at a time of rising prices. The Slovak crown has also been setting record highs against the dollar and the euro.

As a hedge against higher prices if Slovakia joins the euro zone, Vladimir Meciar, leader of the government coalition member People's Party-Movement for a Democratic Slovakia, has called for a 22-billion crown (€680 million) emergency fund to help the most vulnerable groups, including pensioners.

Prime Minister Robert Fico has yet to commit to any such scheme. "We'll be behaving respectfully towards the socially weakest people, but at the same time we'll treat finance policies responsibly," he said recently.

But if European regulators approve, Slovakia will become the 16th member of the currency union and the country's 5.4 million people, young and old, will have to make the transition.

"It's easy for the young, but I'm afraid of not being able to tell how much money I have in my hand," said Emil Pils' wife, Agnesa. "From what I've seen, those coins are not very different from one another...People on TV and the radio who often talk about how good it's going to be to have the euro say getting used to it is just a matter of time, and that everything takes time," she shrugs.

Meanwhile, her husband worries about rising prices and says—with a smile—that he will be watching every single eurocent.

"Well, my sight is poor," he says. "Why do they make me keep track of such small coins? Crowns are better. When you lose five crowns [equivalent to 15 eurocents] you don't really care much, but what if I start losing euros?"